So here's the scenario: You and your family decide to take a nice leisurely drive on a Sunday afternoon in Alexandria, VA when suddenly, you see it, the home of your dreams! Your heart starts beating fast as you frantically grab your cell phone and dial the telephone number on the sign. You connect with the listing agent who informs you that yes, the home is still available and she can show it to you right now! The agent pulls up in her car, introduces herself to you and then unlocks the door. The moment she opens the door, you know, this house is the one! The agent mentions to you that another couple will be viewing the property later on this evening and there will be an "open house" tomorrow! You go into total panic mode. You remember that a friend of yours told you that you shouldn't ever work with the listing agent, but you don't remember why. Besides, this agent seems really nice and you are really scared that you will lose the house if you don't write an offer right now! Didn't the agent just say there were other interested parties and you should probably consider making a full-price offer?
You follow the agent back to her office while she prepares the offer for your signatures. She returns with a thick stack of paperwork which is frankly incomprehensible to you, so you listen carefully to the explanations the agent gives you as to what you are signing. You are anxious and excited and just want to get this done, so you're not really listening too well when she hands you that "consent for dual agency" paperwork that you need to sign. Something about how the agent represents you? Well, it doesn't matter, an agent is an agent, right? As long as you get the house, that's all that really matters to you at the moment!
You leave the agent's office with a copy of the offer that you signed and wait anxiously for a response from the Seller. The agent calls you back a little while later with the joyous news that the Seller has accepted your offer with a few exceptions. The Seller is happy with your offer overall, but he just reduced his price by $35,000 and is taking a loss so he would like for you to take the property in "as is"' condition and he still has to find somewhere else to live, so he needs a little bit of extra time and could he rent back from you for a little while after the settlement? The "as is" part sounds a little unsettling to you, so you do a little homework and insist on having a home inspection performed. The home inspection reveals that there are some outlets with "reverse polarity" as well as some cracked/missing roof shingles and some pipes under the bathroom sink are leaking. Your agent writes up a "request for repairs" which is agreed to and signed by the Seller.
Settlement day arrives and everything goes forward without a hitch. Since the Seller is remaining in the property for two weeks after closing, you didn't think it would be a big deal to put off your final walkthrough until the Seller had vacated the property. Finally, the long wait is over, the Seller has moved out and you are finally free to take possession of this home! Your agent calls you and sets up a time to do an inspection of the property. You open the door and the first thing you realize is that the the Seller apparently punched a hole in the wall while he was moving out. You see stains in the carpet (which were previously hidden by furniture) and the items the Seller agreed to repair? They were completed, but the Seller wanted to save some money, so he did them himself instead of hiring licensed professionals to complete them as he agreed to in the "request for repairs" that was executed. Your agent is embarrassed at how the Seller left the property and upset on your behalf but admits that since settlement has already occurred and the Seller is long gone, there is not much she can do. Although you are really disappointed in the condition of the home, these things are, afterall, relatively minor in the grand scheme of things, you decide to just let it go. At this point, you just want to move in to your lovely new home!
Can "agency" really make that big of a difference?
Taking the scenario above, how might it have turned out differently if the buyer had chosen to have an agent represent him exclusively? First of all, a buyer's agent would have no reason to suggest that you, as the buyer, should offer full price (unless there truly were multiple offers or the property was underpriced to begin with). Since an exclusive buyer agent representative has no existing relationship with the Seller, he/she has no incentive to consider the Seller's wants/needs/desires. This frees up the buyer agent representative to fully pursue the property on your behalf without any underlying conflicts. In contrast, an agent who already has a relationship with the Seller has prior knowledge of the Seller's situation and may inadvertently try to manipulate you, as the buyer, in that direction. I'm not saying the listing agent is corrupt or a bad person but it's just human nature to want to get the deal done, especially when there is a financial incentive attached.
After negotiating the best deal for you as the buyer, the buyer's agent would then have insisted that you complete a home inspection. The buyer's agent, more than likely would also have asked the the Seller to execute a "post settlement occupany agreement" which would have required the Seller to have a "security deposit" held in escrow by a title company in the event that there were some damages to home that were found after the Seller vacated the property (like the hole in the wall and the stains on the carpet). The buyer's agent would have made sure that a walkthrough was completed prior to settlement and would have asked the Seller's agent for repair receipts from the licensed contractors who were supposed to have completed the repairs that were agreed to following the home inspection. If the Seller's agent could not produce these receipts, the buyer's agent would then have asked to have the Seller to agree to take money from the his proceeds at settlement to either escrow or credit to the buyer to cover the cost of these repairs that he agreed to make.
The high cost of doing business with a "dual agent"
The ironic thing is that there are actually a subset of consumers who purposely seek out listing agents to work with because they feel they are more likely to be able to "get a deal" if only one agent is involved. Traditionally, the commission is split equally between the listing and selling agents, so many agents are willing to cut their commission if they get both sides of a transaction. The thinking is that since the commission paid is reduced overall the Seller's cost are cut and he/she in turn, can take less money for the property. While this premise seems to make sense on the surface, there is no guarantee that just because the Seller pays less commission that the Seller will take any less for the property.
Additionally, as seen from the example above, there is a lot more to the home buying process than simply getting the best price. What good does it do you to get $5,000 off the price of the home and then find out that you will have to replace your furnace or your roof a year after moving in? Or even paying full price and then finding out that a home around the corner exactly like the one you just bought, just sold for $20,000 less than what you paid? A buyer's agent would have had a legal obligation to let you know that a home exactly like the one you just bought was listed for $20,000 less in the same neighborhood.
The Northen Virginia Association of Realtors "Disclosure of Dual Representation" states the following: "The undersigned understand that the dual representative named above may not disclose to either client or such client's designated representative any information that has been given to the dual representative by the other client within the confidence and trust of the brokerage relationship except for that information which is otherwise required or permitted by the Code of Virginia to be disclosed."
By comparison, most "Exclusive right to represent Buyer" agreements have the Broker duties outlined such as "seeking property at a price and terms acceptable to the Buyer" and "assisting in the drafting and negotiating of offers and counteroffers to and from the Buyer and Seller and in establishing strategies for accomplishing the Buyer's objectives". The Greater Capital Area Association of Realtors "Buyer Agency Agreement" states "Represent the interests of the Buyer in all negotiations and transactions regarding the acquistion of real property".
"Fiduciary obligation" defined:
When an agent signs an "Exclusive Right to Represent Buyer" agreement, that agent has then become a "fiduciary" representative of his/her buyer client. I found this great definition of "fiduciary obligation" in the "Lectric Law Library": When one person does undertake to act for another in a fiduciary relationship, the law forbids the fiduciary from acting in any manner adverse or contrary to the interests of the client, or from acting for his own benefit in relation to the subject matter. The client is entitled to the best efforts of the fiduciary on his behalf and the fiduciary must exercise all of the skill, care and diligence at his disposal when acting on behalf of the client.
Just say "no" to dual agency!
I hope that having read the preceding you are more convinced than ever that it is not in your best interests in most cases to consent to "dual agency". This also applies if you are listing your home for sale. You might be thinking it would be great if your listing agent found you a client and sold it to that client him/herself, but this is not always the best scenario. Having been involved in this type of situation in the past, I can tell you that neither party receives the best representation and there are more likely to be issues in a transaction where your agent can be put into a "rock and a hard place" situation where he/she can please neither client. If your agent asks you to "consent to dual agency" simply say "no". If a prospective buyer does call your agent, the agent can refer that buyer to another agent to show the property. This keeps everything clean and above board and avoids the potential of a conflict of interest occurring.
Should Virginia and D.C. take their cue from Maryland?
Lastly, it is interesting to note that several states have outlawed the practice of "dual agency" (including Maryland) in the sense that it is not legal for one agent to represent both parties in the same transaction. In Maryland, the only "dual agency" that can occur is when a buyer's agent is from the same brokerage firm as the listing agent, in this case, the broker, not the agent, becomes the "dual agent" and both agents still have fiduciary obligation to their respective clients. A listing agent may work with a buyer (if the buyer gives consent in writing) to purchase a home he/she has listed, but only as an exclusive representative of the Seller.